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Inflation or Deflation Ahead?

Apr 23, 2008
Proper business planning is essential in any business. Some companies are better than others of course; for instance, Toyota's planning is superior to the U.S. automaker's planning. Toyota used innovative technology and began to introduce high mileage hybrids when the cost of gasoline began to rapidly rise. This type of proper business planning will lead to greater success.

Similar to business planning is personal planning. By properly planning for the future you will experience a more successful life. Planning a personal budget, future expenditures or choosing investments is essential for the highest level of success.

The U.S. happens to be engaging in a hyperinflationary path today. What this means is the Federal Reserve is loaning billions of dollars to ailing banks. This causes many economical problems such as inflation. Many believe inflation to be the rise of prices; actually it is a devaluation of money due to dilution. When Ben Bernanke gave his infamous helicopter speech it was stated that the Federal Reserve can dilute the value of a country's money when they feel the need.

Right now we are on a hyperinflationary path; however, will we continue on this path all the way to the end as Weimar Germany did in the early 1920's? We certainly need not. The currency became completely worthless in Weimar Germany due to hyperinflation. The exchange rate in 1914 was 4.2 Marks to one U.S. dollar. By 1920 it had changed so drastically that it took nearly 39.5 Marks to on U.S. dollar. The trend continued down this path until November 1923 where it would take 2.4 trillion Marks to equal one U.S. dollar!

By December of 1923 the Mark was completely worthless and was replaced. This is a prime example of a country's currency that experienced hyperinflation to the point of worthlessness. The big question regarding hyperinflation is if it is necessary to add to the continuation of prices until it reaches infinity? No. In the late 1970's the U.S was on an inflationary path. This could have continued with more and more currency being created; however, the attention was drawn to the rapidly raising costs. Paul Volcker, changed the path from a hyperinflationary one that the country was on.

Well, here we are, 28 years later, and again this country is going down a hyperinflationary path. Where will it stop this time? Will it continue to the ultimate end like Weimer Germany in the 1920's, or will it be halted like it was in 1980? If it is halted, at what point will that be?

Those are very good question. There was a recent news story about riots in Haiti over rapidly rising food prices. Already, five people have been killed. Sometimes the public gets very upset with rising prices. Sometimes the public doesn't. Sometimes hyperinflations are halted. Sometimes they aren't.

When will today's hyperinflationary path change courses? I would like to know the answer to that. Rapidly rising home prices didn't seem to cause much complaint from the public; of course those who owned homes already didn't notice this.

All ships will rise with the rising tide. It is nearly impossible for home prices to rise with the prices of food, gasoline, clothes and everything else falling. My best guess right now is that the hyperinflation will continue for now and when the prices of homes begin to raise again the public will see it as a good thing.

When there is rioting and deaths due to rising prices of food and gasoline, then the days of hyperinflation may be nearing an end. Stay tuned.
About the Author
J Stromsteen has many years experience in the insurance and finance industry. She writes for the website Bush's Depression as well as first time home buyer to comment with up to date details on the unfolding real estate crisis.
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